Two weeks ago, Tom Klopack, CEO of Aclara BioSciences, told ProteoMonitor that the the company was in discussions with “four or five companies” to develop “typical biotech collaborations” for cancer diagnostics and therapeutics based on Aclara’s eTag technology (see PM 5-21-04).
This week, those four or five prospective collaborators narrowed down to one serious partner, as Aclara and South San Francisco, Calif.-based molecular diagnostics company ViroLogic announced a definitive acquisition agreement. In the agreement, the combined company will retain the ViroLogic name, and incorporate Aclara’s eTag technology and ViroLogic’s commercial infrastructure to focuses on cancer diagnostics as well as those in infectious diseases such as HIV and HCV.
The acquisition is expected to be finalized by the end of the third quarter or beginning of the fourth quarter, according to ViroLogic CEO Bill Young.
Under the deal, Young will remain at the helm of the new ViroLogic, which will be located at the South San Francisco, Calif., headquarters. Aclara’s personnel will move to this facility and the company’s Mountain View, Calif., location will shut down. About 30 to 40 of Aclara’s employees will be retained, said Young. Some of the cuts will be made in the area of administration to eliminate redundant positions. Klopack will step down after the merger is finalized, but will work with Young “in a consultant” role for a time, Young said.
For ViroLogic, the acquisition is life-sustaining. The company, which had $9.5 million in top line assets at the end of the last quarter, will now have $75 million in cash at the end of the acquisition, before the exercise of attached contingent value rights. Under the all-stock transaction, which is subject to shareholder and regulatory approval, every share of Aclara stock will be exchanged for 1.7 shares of ViroLogic common stock as well as 1.7 contingent value rights, or CVR, for a total of $4.78 per share. The CVR includes a potential cash payment of up to $.85 per Aclara Share, and is contingent upon the ViroLogic stock price 12 months after the merger is closed.
For Aclara, becoming part of ViroLogic could provide a needed on-ramp to commercializing products. At the end of the last quarter, Aclara had $83.6 million in cash, cash equivalents and marketable securities, but admitted in its last form 10-Q filed with the US Securities and Exchange commission to having “limited experience with developing, manufacturing, distributing or selling products and delivering services on a commercial basis.” ViroLogic, by contrast, has numerous patient tests and pharmaceutical assays on the market, in HIV, high throughput screening, HBV, and HCV, and is developing further applications of these assays.
Cancer: The Next Personalized Medicine
For ViroLogic, which started up in 1999, the HIV and HCV genotyping and phenotyping has led to near-profitability. The company reported $8.6 million in revenue for the first quarter on losses of $1.2 million, up from $6.6 million in the year-ago quarter on losses of $2.5 million. But the market for HIV and HCV testing alone is limited. The cancer testing market provides a needed growth opportunity.
“We are taking the longer view that cancer is the real next market for personalized medicine after infectious disease, after HIV,” Young told ProteoMonitor’s sister publication Pharmacogenomics Reporter. “All, or virtually all of the things that we’ve learned in the HIV business will apply [to cancer] and the market is 10 times bigger.”
In the conference call, Young cited the five targeted therapies, Herceptin, Gleevec, Iressa, Erbitux, and Avasta, as examples of “the advent of personalized medicine in oncology,” and noted that in addition to these approved drugs, there are “dozens more in clinical testing.”
Of these drugs, Herceptin, Erbitux, and Iressa all act on the Epidermal Growth Factor pathway. Aclara has already developed eTag assays that target this pathway. The company plans to launch point of care diagnostics in this area first, Young and Klopeck said in the conference call. ViroLogic plans to introduce these products through a CLIA-certified lab over the next several months, Young said. The company is also researching additional pathways, including VEGF and PDGF.
“The eTag-based EGF assays are ready to roll out,” said Young, and ViroLogic is ready to begin using this at a reference lab that it has operated for patient testing since 1999.